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With numerous cycle analysts and technicians making analogies with previous
precrash formations, I thought it would be interesting to compare Ben's Mkt
Health Index(MHI) for the summer of 1987 with that of 1998. If I understand
the composition of his index correctly from his RT posts it looks something
like this
((NH - NL)/Total issues + (Adv - Decl)/Total issues + (Uvol - Dvol)/Total Vol)
* 100
Looking over a period of a few years with the eyeball technique, corrections
appear to be confined to MHI levels between -150 and zero. Crash modes,
defined as 1000 point drops in the DJIA occur with the MHI below -175. As of
Friday the MHI is about -100.
The chart in this attachment is for 1987. It also has the WinMidas S/R lines
defined as cum(price*volume)/cum(volume). These do look similar for '98 and
'87 The chart on the next email has the chart for 1998. There are some
similarities and some differences. The first thing of note is the MHI for
1988 is still in the corrective region and has been making higher lows since
late April. On Friday it did drop back to that MHI uptrending support line
while the DJIA has been finding support on the green WM S/R line near 8821.
Back in '87 the index just sliced through the green support line and the MHI
headed down to crash mode levels. So, I guess you could say there are some
similarities in the major price peaks as presented in Barron's this weekend,
but that is such a small part of the story and so far the recent action is
corrective and not of crash mode variety.
BobR
Attachment Converted: "c:\eudora\attach\DJIA87.gif"
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